ANAO report finds Morrison government $2b Community Health and Hospitals program deliberately breached law

In what the current Health Minister Mark Butler has described as running "roughshod" over health funding, the national audit office found most recipients of the program were selected by government without assessment or guidance, and at such speed the "department was forced to monitor the media to know which projects had been selected".

The Community Health and Hospitals program, announced by then-prime minister Scott Morrison in December 2018 ahead of the 2019 federal election, was set up to fund projects and services in every state and territory.

The audit office found 45 per cent of funded projects were located in what the Australian Electoral Commission regarded as marginal electorates, 24 per cent were in electorates categorised as fairly safe and the remaining 31 per cent were categorised as safe. The report also found 71 per cent of all marginal electorates got funding under this Morrison government program.

The program focused on cancer treatment, rural health and hospital, drug and alcohol treatment and mental health. Included in the funding was a questionable $4 million grant for the controversial and now closed Christian rehab facility, the Esther Foundation.

In a report tabled in Parliament on Monday, the Australian National Audit Office revealed the application processes were plagued with ethical and legal concerns.

The report said the Department of Health's administration of the grants was inappropriate and ineffective, "involving deliberate breaches of the relevant legal requirements and the principles underpinning them".

"Application processes were not fully consistent with the principle of achieving value for money, and [the Department of] Health undertook limited due diligence before recommending funding," the audit office wrote.

The report found the department failed to develop grant guidelines for seven of 108 grants, and in at least three instances "this represented a deliberate decision by senior management not to comply with finance law".

Even where grant opportunity guidelines were developed, they were found to be inconsistent with Commonwealth grant rules and guidelines of "robust planning, transparency and probity".

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Mr Butler described the Esther Foundation's $4 million funding as a "captain's pick" from Mr Morrison.

The foundation provided counselling for issues including addictions, sexual abuse and mental health. The national audit office found the grant was entered into without a financial viability assessment, audited financial statements, or even the legal authority to support the expenditure.

The audit revealed a departmental assessment of the grant proposal had copied words from an Esther Foundation media profile and an activity plan provided by the foundation on request from the department itself.

The foundation is now in voluntary administration after allegations of sexual and psychological abuse.

According to the ANAO, the Health Department also recommended funding multiple grants prior to confirming whether there was lawful authority to do so, or even in cases where they knew there was no legislative authority.

While the department established an expression of interest process for potential projects, most approved projects were selected by the government of the day outside of this process.

The audit office found government announcements and media releases were occurring before robust grant administration planning was finalised, as well as a lack of documentation and poor records management.

Funding was delivered through national partnership agreements with states and territories, and grants to Primary Health Networks and non-government organisations.

According to the report, the department received several requests from the minister's office to draft national partnership agreements once projects were publicly announced.

"Following these requests, Health decided to begin drafting national partnership agreements on the basis of public announcements. Health monitored the media to keep track of announcements," the report states.

Of 63 national partnership agreement projects approved for funding, only two projects were found by the department to be "highly suitable", even though the department's original plan stated only "highly suitable" proposals would be considered.

The minister said the audit report showed the program was a slush fund.

"The Morrison government announced billions of dollars of taxpayers money for health projects around the time of the 2019 election, with no regard to proper process or good governance," Mr Butler said in a statement.

"This program exemplifies the Morrison government's time in office - one plagued with waste and rorts. A government that was all announcement and no delivery.

"This taxpayer money was so poorly allocated that years later, at a time when Medicare and the health system are under such strain, just half of the $2 billion has actually been spent."

The audit office found the Department of Health's monitoring and evaluation of individual projects was limited, "in part due to lack of specificity in agreement milestone", and that there had been no overall evaluation of the program.

The report states the department has noted the findings, accepts the recommendations and has commenced implementation of improvements.

The Health Minister said, as late as November 2022, more than half the projects involving infrastructure were stuck in the preliminary or planning stage, and a little over half the $2 billion funding has been expended.

He said he has directed the department to rigorously "go line-by-line" over the remaining projects to ensure value for money.

Opposition's health spokeswoman Anne Ruston said it was "really disappointing to read the Auditor-General's findings on the department's administration of these important grants".

"The Coalition welcomes the department's acceptance of all four recommendations following this review and their commitment to doing better," she said.

"It is critical that important healthcare funding is directed to where it will be effective and in line with the intention of government programs as well as proper process."

The recommendations include a comprehensive external review of the department's financial controls and assurance framework.